U.S. Credit Card Balances See Largest Yearly Leap on Record
The resilient consumer has kept the US economic engine running, but it’s coming at a big cost: Americans are piling up record credit card balances, and more and more are falling behind on those payments. During the third quarter, credit card balances hit a fresh high of $1.08 trillion, rising $48 billion from the prior quarter and leaping by a record $154 billion from the year before. The year-over-year increase is the largest since the New York Fed started tracking that data in 1999. [CNN]
Rising prices are causing Americans to fall deeper into credit card debt
Alarming Number of Americans Fall Deeper into Credit Card Debt Each Month
As Americans grapple with record-high debt and stubborn inflation, many also struggle with credit card debt. In fact, more than half (61%) of Americans have credit card debt today and they owe an average of $5,875, according to a survey by Clever. And many aren’t just using plastic for luxury. About half of credit card users (48%) turn to their cards to cover essential living expenses such as rent, food and utilities. Some are falling behind. About 28% of card users say they find it difficult to make the minimum payments on their credit cards and 14% say they’ve missed a payment this year. On average, Americans spend $1,506 on their credit cards each month, which translates to more than $18,000 a year. [Fox Business]
Consumers’ Credit Card ‘Switch’ Looks Set to Benefit BNPL and Digital Wallets
A new research study found that half of U.S. consumers tried using a new payment method in the past year, and 16% switched to a new one. Only 13% of consumers said credit cards were the new payment method they tried. Digital wallets are seeing relatively widespread uptake, having been used in 30% of what we might term “new” cases, which means that 3 out of 5 U.S. consumers who tried a new payment method in the last year did so with digital wallets. Digital wallets, we found, offer convenience as consumers track their payments. Moreover, 4 out of 10 consumers who tried this method reduced the use of other payment methods after beginning their use of digital wallets. Trailing, but still capturing some share are buy now pay later options, cited as a new payment method by 5% of consumers. [PYMNTS]
Buy Now, Pay Later Often a Debt Trap
The Consumer Federation of America and the Center for Responsible Lending surveyed consumers in California who used BNPL and found “substantial misunderstandings” about how these financial products work and the potential costs. In the last six months, more than a third (37%) said they had incurred a bank overdraft fee and 16% paid a late or rescheduling fee charged by the BNPL provider or bank. Because there is little regulation of BNPL loans, each provider can have different rules for handling auto withdrawal payments and late payments. Consumer advocates are urging the CFPB to oversee these loans as it does credit cards. [Consumers’ Checkbook]
America’s Growing Economy, Brought to You by Visa and Mastercard
Mainstream financial network pundits and government officials keep telling us that the economy is chugging along because Americans continue to spend money. But it’s clear that borrowing is the only thing sustaining this spending spree. Meanwhile, the “resilient” American consumer is drowning under a surging tidal wave of debt. As prices skyrocketed last year, Americans blew through their savings to make ends meet. Aggregate savings peaked at $2.1 trillion in August 2021. As of June, the San Francisco Fed estimated that aggregate savings had dropped to $190 billion. In other words, Americans ate away $1.9 trillion in savings in just two years. Then they turned to credit cards. [Schiff Gold]
Cross-Border Payment Headaches Burden Consumers
In a consumer and small business report issued last month, Mastercard zeroed in on cross-border payment headaches affecting consumers in the U.S. and other international markets as they transact between countries. The company’s survey research showed that consumers are grappling with inflation, searching for economic security and planning to execute cross-border payments more frequently. Meanwhile, small and mid-sized businesses are navigating poor payment experiences with international suppliers and bracing for cross-border payment fraud. [Payments Dive]
It’s Back: Targeted Amex Card Holders Can Get Up to 50% Off at Amazon
American Express cardholders may be eligible for an Amazon promotion where you can save big on Amazon purchases by redeeming as little as one Amex point. Targeted American Express card members can save as much as 50% on their next Amazon purchase, for up to $80 in savings when you use Amex points to pay for at least a portion of your purchase at checkout. This offer is set to expire on December 31, 2023, so even if you aren’t in the market to shop at Amazon right now, you have some time to take advantage of the savings. That said, Amazon also states it will deactivate the offer after 60,000 customers have redeemed it. [CNN]
Affirm Is Poised to Expand in a Higher Rate Environment, CFO Says
Buy-now-pay-later company Affirm expects demand for its short-term consumer loans to increase if interest rates stay high for an extended period. Affirm is one of several buy-now-pay-later companies that expanded rapidly during the early days of the pandemic, fueled in part by a rise in e-commerce. But earlier this year, the company was one of many in the technology sector to slash costs, laying off 19% of its workforce, after higher interest rates pinched consumer spending. Affirm makes loans to customers at the point of sale, with terms ranging from six weeks to five years. The company’s financial position, however, has since improved. During the quarter ended Sept. 30, gross merchandise volume—transactions on the company’s platform, minus refunds—increased 28% from a year earlier, to $5.6 billion. Revenue increased 37%, to $496.5 million. Affirm’s net loss, meanwhile, narrowed to $171.8 million from $251.3 million. [The Wall Street Journal]
Citi Launches $200 Cash Back Welcome Bonus on Double Cash Credit Card
One of the best flat-rate cash-back credit cards on the market got even better in November 2023, as Citi launched a welcome bonus on its Citi Double Cash Card. Traditionally, the Double Cash does not offer a welcome bonus. The welcome offer launched in November 2023 is as follows: Earn $200 cash back after spending $1,500 on purchases in the first six months of account opening. This bonus offer will be fulfilled as 20,000 ThankYou Points, which can be redeemed for $200 cash back. [USA Today]
How a Home Equity Loan Can Help You Eliminate Credit Card Debt
Perhaps the biggest advantage of using a home equity loan to pay off credit cards is the cost savings they may offer. According to the Federal Reserve, the average credit card interest rate is currently 22.77%, with many cardholders paying rates over 30%. By contrast, average home equity loan rates for 10- and 20-year terms are 8.09% and 8.16%, respectively. Because home equity loans are second mortgages secured by your home, the lender carries less risk, which translates to lower interest rates for borrowers. For this reason, home equity loans are often used to consolidate high-interest credit cards, which could provide you with substantial savings over time. However, be aware that your lender could foreclose on your home if you fail to repay your loan. [CBS News]
